Irish parties join hands to rebuild

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Dublin - Ireland is set for a coalition government after the two parties that topped last month's elections, Fine Gael and Labour, agreed on Sunday to share power and work together on slashing a massive deficit.

"I am happy to tell you that we have concluded an agreement," Fine Gael leader Enda Kenny told RTE state radio, adding: "Some of the final details are now being worked out for presentation to both parties."

Delegates at a Labour party special conference voted "overwhelmingly" to support the deal, according to a tweet on the party's website, and a Fine Gael spokesperson said its parliamentary party meeting had also backed it.

The February 25 election has redrawn the political map of eurozone nation Ireland as voters hammered Fianna Fail, the party of outgoing premier Brian Cowen which had dominated Irish politics for 80 years.

The former ruling party's collapse came three months after Fianna Fail agreed an EU-IMF bailout worth €85bn, which many Irish see as a humiliation.

Ireland's budget deficit reached an alarming 32% of gross domestic product after a state bailout of the country's banks, which had lent recklessly and fuelled an unsustainable property boom.

Fine Gael and Labour issued a joint document on Sunday in which they said voters had chosen parties "to begin mending the pieces of a fractured society, a broken economy".

Economy shattered

It added: "It is no exaggeration to say that we now face one of the darkest hours in the history of our independent state. Our economy and our politics have been shattered. But our people's spirit has not."

Fine Gael and Labour meanwhile agreed on working to reduce the deficit to the eurozone target of 3.0% of GDP by 2015.

Labour negotiator Brendan Howlin added that renegotiation of the EU-IMF bailout must be addressed immediately.

Ireland became the second country in the 17-nation eurozone after Greece to accept a bailout following the collapse of an economy whose roaring growth saw it dubbed the "Celtic Tiger".

Kenny, a 59-year-old former teacher, is keen to wrap up the coalition talks quickly so that he can get on with trying to renegotiate the terms of the bailout.

In the election Kenny's opposition Fine Gael became the largest party with 76 seats in the 166-member Dail, the lower house of parliament, following the historic defeat of Fianna Fail.

Labour has 37 and Fianna Fail was left with just 20 seats, down from the 78 it won in 2007.

What went wrong ?

Fianna Fail's former coalition partner, the Green Party, was also punished, losing all of its six seats.

The Sinn Fein party almost tripled its seats to 14, while its president Gerry Adams entered the Dail for the first time. Elsewhere, 19 independents and other lawmakers were elected in last month's vote.

Ireland's economy was once the envy of the world but when the house of cards collapsed and Dublin was forced to agree an international bailout, voters were left asking what went wrong.

Between 1995 and 2007, a country once reliant on farming averaged growth of six percent a year - hitting 10% some years - while unemployment dropped from 15 to five percent in a decade and GDP doubled.

But in 2008, the worst recession in Ireland's history hit, causing the economy to shrink by 3.5%, widening to a crushing eight percent contraction in 2009.

Unemployment soared to almost 14%, triggering a new wave of Irish people looking for work abroad just as their ancestors had once done.

After stabilising last year, growth is predicted to return at a modest one percent in 2011, but the figure is far from what is required if Ireland is to claw its way out of its deep debt hole.

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